Arhaus Announces Third Quarter 2021 Financial Results

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Strong Revenue Growth with Both Retail and eCommerce up 69% Compared to Third Quarter 2020

BOSTON HEIGHTS, Ohio, Dec. 09, 2021 (GLOBE NEWSWIRE) -- Arhaus, Inc. (NASDAQ: ARHS; “Arhaus” or the “Company”), a rapidly growing lifestyle brand and omni-channel retailer of premium home furnishings, reported financial results for the third quarter ended September 30, 2021.

John Reed, Co-Founder and Chief Executive Officer, commented,

“We are extremely pleased with our third quarter results and underlying trends in our business. During the third quarter, we generated record quarterly revenue and continued to see very strong demand for our products. In the quarter, net revenue increased 68.7%, comparable growth was 61.3%, net and comprehensive income was up 1736.9%, adjusted EBITDA increased 215.3%, and we ended the quarter with 77 total showrooms across 28 states.

“At a time when consumers are investing in their homes and looking for more functional living spaces, our globally curated assortment of hand-crafted products made by leading artisan vendors around the world is clearly resonating with consumers. We have an incredible team of people dedicated to building the Arhaus brand, and we are making investments across the organization to scale our business and capitalize on the strong demand trends. We believe we are in a position to significantly increase our showroom footprint and drive profitable long-term growth.”

Third Quarter 2021 Results

Net revenue increased 68.7% to $203 million, compared to $121 million in the third quarter of 2020. The increase was driven primarily by increased demand in both Showroom and eCommerce channels as well as the delivery of orders in the backlog as our supply chain begins to catch up with client demand.  

Comparable growth(1) in the quarter was 61.3%, compared to a decrease of 3.7% in the third quarter of 2020.

Income from operations increased 281.9% to $16 million, compared to $4 million in the third quarter of 2020, primarily driven by the increase in net revenue and associated leverage of fixed costs, partially offset by higher product and transportation costs related to the increased net revenue, higher SG&A expenses to support the growth of the business, higher commissions in our Showrooms related to strong demand, and one-time initial public offering ("IPO") expenses.  

Net and comprehensive income of $14 million was a 1736.9% increase compared to $1 million in the third quarter of 2020. The increase was driven primarily by the above factors as well as decreased interest expense. Net and comprehensive income as a percent of net revenue increased 600 basis points to 7% in the third quarter of 2021, compared to 1% in the third quarter of 2020.  

Adjusted EBITDA increased 215.3% to $31 million, compared to $10 million in the third quarter of 2020, driven by the factors above.   Adjusted EBITDA as a percent of net revenue increased 700 basis points to 15% in the third quarter of 2021, compared to 8% in the third quarter of 2020.

Importantly, we continued to invest in our growth in the third quarter by opening a new traditional Showroom in Salem, New Hampshire and a new Design Studio in Burlingame, California. We also relocated our McLean, Virginia showroom to Tyson’s Galleria, deploying our new format. We ended the quarter with 77 total showrooms across 28 states.   We also began a 230,000 square foot expansion of our distribution and corporate office facility in Ohio and plan to open another distribution facility in the western U.S. in 2022.

Balance Sheet and Cash Flow Highlights, as of September 30, 2021

Cash and cash equivalents totaled $149 million, and the Company had no long-term debt.   Net merchandise inventory increased 57.9% to $171 million, compared to $108 million as of December 31, 2020.

For the nine months ended September 30, 2021, net cash provided by operating activities was $143 million, compared to $115 million for the nine months ended September 30, 2020. The increase was primarily driven by client deposits resulting from strong demand, partially offset by higher working capital driven by increased inventory to satisfy the higher demand.

For the nine months ended September 30, 2021, net cash used in investing activities was approximately $30 million, which includes landlord contributions of approximately $11 million and company-funded capital expenditures(2) of approximately $18 million. For the nine months ended September 30, 2020, net cash used in investing activities was approximately $11 million, which includes landlord contributions of approximately $10 million and company-funded capital expenditures of approximately $1 million.

Recent Events

Since the end of the third quarter, we completed our IPO. Our shares began trading under the symbol ARHS on the Nasdaq Global Select Market on November 4, 2021. IPO proceeds were used to pay the $64 million exit fee associated with the term loan that was paid off in December 2020, and the balance will provide additional working capital for general corporate purposes.

We also entered into a new $50 million revolving credit facility with Bank of America on November 8, 2021.

Outlook

The table below presents our expectation for selected fiscal full year 2021 and implied fourth quarter 2021 financial operating results.

 Full Year 2021Implied 4Q 2021
Net revenue$764 to $774 million$205 to $215 million
Comparable growth44% to 47%20% to 25%
Net income (loss)(3)$1 to $6 million$(30) to $(25) million
Adjusted EBITDA$102 to $107 million$12 to $17 million
Other estimates:  
Company-funded capital expenditures$32 to $34 million 

(1) Comparable growth is a key performance indicator and is defined as the year-over-year percentage change of the dollar value of orders delivered (based on purchase price), net of the dollar value of returns (based on amount credited to client), from our comparable Showrooms and eCommerce, including through our direct-mail catalog.
(2) Company-funded capital expenditures is defined as total capital expenditures less landlord contributions.
(3) Includes the derivative expense and several one-time costs described in the Reconciliation of Outlook Net Income (Loss) to Outlook Adjusted EBITDA table below.

Conference Call and Slides

You are invited to listen to Arhaus’ conference call to discuss the third quarter of 2021 financial results scheduled for today, December 9, 2021, at 8:30 a.m. Eastern Time. The call will be available over the Internet on our website (http://ir.arhaus.com) or by dialing (877) 407-3982 within the U.S., or 1 (201) 493-6780, outside the U.S. The conference ID is: 13725165. A set of slides containing summary financial information will be available from the Investor Relations section of our website at: http://ir.arhaus.com.

A recorded replay of the conference call will be available within approximately three hours of the conclusion of the call and can be accessed online at https://ir.arhaus.com/ for approximately twelve months.

About Arhaus

Founded in 1986, Arhaus is a rapidly growing lifestyle brand and omni-channel retailer of premium home furnishings. Through a differentiated proprietary model that directly designs and sources products from leading manufacturers and artisans around the world, Arhaus offers an exclusive assortment of heirloom quality products that are sustainably sourced, lovingly made, and built to last. With more than 75 showroom and design center locations across the United States, a team of interior designers providing complimentary in-home design services, and robust online and eCommerce capabilities, Arhaus is known for innovative design, responsible sourcing, and client-first service. For more information, please visit www.arhaus.com. 

Non-GAAP Financial Measures

In addition to the results provided in accordance with GAAP, this press release and related tables include adjusted EBITDA which presents operating results on an adjusted basis.

We use non-GAAP measures to help assess the performance of our business, identify trends affecting our business, formulate business plans and make strategic decisions. In addition to our results determined in accordance with U.S. GAAP, we believe that providing these non-GAAP financial measures are useful to our investors as they present an informative supplemental view of our results from period to period by removing the effect of non-recurring items. However, our inclusion of these adjusted measures should not be construed as an indication that our future results will be unaffected by unusual or infrequent items or that the items for which we have made adjustments are unusual or infrequent or will not recur. These non-GAAP measures are not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. Because not all companies use identical calculations, the presentations of these measures may not be comparable to other similarly titled measures of other companies and can differ significantly from company to company. These measures should only be read together with the corresponding GAAP measures. Please refer to the information included in this release for how we define these non-GAAP measures and for reconciliations to the most directly comparable GAAP measures.

Forward-Looking Statements

Certain statements contained herein, including statements under the heading “Outlook” are not based on historical fact and are “forward-looking statements” within the meaning of applicable securities laws. Forward-looking statements can generally be identified by the use of forward-looking terminology, including, but not limited to, “may,” “could,” “seek,” “guidance,” “predict,” “potential,” “likely,” “believe,” “will,” “expect,” “anticipate,” “estimate,” “plan,” “intend,” “forecast,” or variations of these terms and similar expressions, or the negative of these terms or similar expressions. Past performance is not a guarantee of future results or returns and no representation or warranty is made regarding future performance. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond our control that could cause our actual results, performance or achievements to be materially different from the expected results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to: our reliance on third-party transportation carriers and risks associated with increased freight and transportation costs; disruption in our receiving and distribution system, including a delay in the anticipated opening of our new distribution and manufacturing center; our ability to obtain quality merchandise in sufficient quantities; risks as a result of constraints in our supply chain; a failure of our vendors to meet our quality standards; the COVID-19 pandemic and its effect on our business; declines in general economic conditions that affect consumer confidence and consumer spending that could adversely affect our revenue; our ability to manage and maintain the growth rate of our business; our ability to anticipate changes in consumer preferences; risks related to maintaining and increasing showroom traffic and sales; our ability to compete in our market; our ability to adequately protect our intellectual property; the possibility of cyberattacks and our ability to maintain adequate cybersecurity systems and procedures; loss, corruption and misappropriation of data and information relating to clients and employees; changes in and compliance with applicable data privacy rules and regulations; compliance with applicable governmental regulations; effectively managing our eCommerce business and digital marketing efforts; and compliance with SEC rules and regulations as a public reporting company. These factors should not be construed as exhaustive. Furthermore, the potential impact of the COVID-19 pandemic on our business operations and financial results and on the world economy as a whole may heighten the risks and uncertainties that affect our forward-looking statements described above. Further information on potential factors that could affect the financial results of the Company and its forward-looking statements is included in the Company’s filings with the Securities and Exchange Commission. The Company assumes no obligation to update any forward-looking statement, except as may be required by law. These forward-looking statements speak only as of the date of this release. All forward-looking statements are qualified in their entirety by this cautionary statement.

 
Arhaus, LLC and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited, amounts in thousands)
    
 September 30,
2021		 December 31,
2020
Assets   
Current assets   
Cash and cash equivalents$149,246  $50,739 
Restricted cash equivalents5,880  6,909 
Accounts receivable, net360  600 
Merchandise inventory, net170,555  108,022 
Prepaid and other current assets20,380  19,733 
Total current assets346,421  186,003 
Property, furniture and equipment, net137,013  117,696 
Goodwill10,961  10,961 
Other noncurrent assets885  1,284 
Total assets$495,280  $315,944 
    
Liabilities and Members’ Deficit   
Current liabilities   
Accounts payable30,383  29,113 
Accrued taxes10,102  7,910 
Accrued wages18,634  9,660 
Accrued other expenses17,412  11,317 
Client deposits260,204  154,128 
Total current liabilities336,735  212,128 
Capital lease obligation50,550  47,600 
Deferred rent and lease incentives76,534  71,213 
Other long-term liabilities51,310  21,094 
Total liabilities515,129  352,035 
    
Commitments and contingencies   
    
Members’ deficit   
Accumulated Deficit(22,654) (37,761)
Additional Paid-in Capital2,805  1,670 
Total members’ deficit(19,849) (36,091)
Total liabilities and members’ deficit$495,280  $315,944 
        


Arhaus LLC and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(Unaudited, amounts in thousands, except unit and per unit data)
 Nine Months Ended September 30, Three Months Ended September 30,
 2021 2020 2021 2020
Net revenue$558,690  $344,606  $203,333  $120,501 
Cost of goods sold325,710  214,817  118,522  75,289 
Gross margin232,980  129,789  84,811  45,212 
Selling, general and administrative expenses196,212  105,122  68,137  40,964 
Loss on disposal of assets466  —  452  — 
Income from operations36,302  24,667  16,222  4,248 
Interest expense4,018  9,335  1,339  2,734 
Income before taxes32,284  15,332  14,883  1,514 
State and local taxes1,704  900  500  731 
Net and comprehensive income$30,580  $14,432  $14,383  $783 
Net and comprehensive income (loss) attributable to the shareholders$30,580  $10,058  $14,383  $(686)
        
Net and comprehensive income (loss) per share       
Basic and diluted$0.27  $0.09  $0.13  $(0.01)
Weighted-average number of shares outstanding       
Basic and diluted112,058,742  112,058,742  112,058,742  112,058,742 
            


Arhaus, LLC and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited, amounts in thousands)
 Nine Months Ended September 30,
 2021 2020
Cash flows from operating activities   
Net income$30,580  $14,432 
Adjustments to reconcile net income to net cash provided by operating activities   
Depreciation and amortization17,206  12,682 
Amortization of deferred financing fees, payment-in-kind interest and interest on capital lease in excess of principal paid839  2,522 
Incentive unit compensation expense1,135  326 
Derivative expense29,905  500 
Loss on disposal of assets466  — 
Amortization and write-off of lease incentives(5,890) (6,807)
Changes in operating assets and liabilities   
Accounts receivable240  185 
Merchandise inventory(62,533) 8,004 
Prepaid and other current assets(647) (424)
Other noncurrent assets—  (1,041)
Other noncurrent liabilities335  (80)
Accounts payable1,698  4,288 
Accrued expenses16,221  4,109 
Deferred rent and lease incentives6,958  12,645 
Client deposits106,076  63,779 
    Net cash provided by operating activities142,589  115,120 
    
Cash flows from investing activities   
Purchases of property, furniture and equipment(29,531) (11,129)
    Net cash used in investing activities(29,531) (11,129)
    
Cash flows from financing activities   
Proceeds from revolving debt—  20,500 
Payments on revolving debt—  (9,500)
Payments on long-term debt—  (11,220)
Repurchase of incentive units—  (100)
Principal payments under capital leases(107) — 
Distributions to owners(15,473) (8,845)
    Net cash used in financing activities(15,580) (9,165)
    Net increase in cash, cash equivalents and restricted cash equivalents97,478  94,826 
Cash, cash equivalents and restricted cash equivalents   
Beginning of period57,648  18,559 
End of period$155,126  $113,385 
    
Supplemental disclosure of cash flow information   
Interest paid in cash$3,877  $6,549 
Income taxes paid in cash$1,292  $1,079 
    
Noncash operating activities:   
    Lease incentives$4,253  $1,717 
Noncash investing activities:   
    Purchase of property, furniture and equipment in accounts payable$(428) $220 
Noncash financing activities:   
    Property, furniture and equipment additions due to build-to-suit lease transaction$1,040  $— 
    Capital lease obligations$2,591  $— 
    Dividends - unpaid$—  $4,374 
        


Arhaus, LLC and Subsidiaries
Reconciliation of Net Income (Loss) to Adjusted EBITDA
(Unaudited, amounts in thousands)
 Nine Months Ended Three Months Ended
(In thousands)September 30,
2021		 September 30,
2020		 September 30,
2021		 September 30,
2020
Net income$30,580   $14,432   $14,383   $783  
Interest expense4,018   9,335   1,339   2,734  
State and local taxes1,704   900   500   731  
Depreciation and amortization17,206   12,682   8,297   4,244  
EBITDA53,508   37,349   24,519   8,492  
Incentive unit compensation expense1,135   326   708   76  
Derivative expense(1)29,905   500   100   167  
Other expenses(2)5,806   2,727   5,188   944  
Adjusted EBITDA$90,354   $40,902   $30,515   $9,679  

___________
(1)  We repaid our term loan in full on December 28, 2020. The derivative expense relates to the change in the fair value of the exit fee at the end of each reporting period.
(2)  Other expenses represent costs and investments not indicative of ongoing business performance, such as third-party consulting costs, one-time project start-up costs, one-time costs related to the Reorganization and IPO, severance, signing bonuses, recruiting and project-based strategic initiatives. For the nine months ended September 30, 2021, these other expenses consisted primarily of $5.0 million of costs related to the Reorganization and IPO and $1.5 million of severance, signing bonuses and recruiting costs. For the three months ended September 30, 2021, these other expenses consisted primarily of $3.5 million of costs related to the Reorganization and IPO and $0.5 million of severance, signing bonuses and recruiting costs.


Arhaus, LLC and Subsidiaries
Reconciliation of Outlook Net Income (Loss) to Outlook Adjusted EBITDA
(Unaudited, amounts in thousands)
Based on Guidance Range       
 Twelve Months Ended Three Months Ended
 December 31, 2021 December 31, 2021
(In thousands)Low High Low High
Net income (loss)$1,000  $6,000  $(30,000) $(25,000)
Interest expense5,000  5,000  1,200  1,200 
State and local taxes2,000  2,000  500  500 
Depreciation and amortization23,000  23,000  6,000  6,000 
EBITDA31,000  36,000  (22,300) (17,300)
Incentive unit compensation expense2,000  2,000  700  700 
Derivative expense(1)45,000  45,000  15,000  15,000 
Other expenses(2)24,000  24,000  18,600  18,600 
Adjusted EBITDA$102,000  $107,000  $12,000  $17,000 

___________
(1)  We repaid our term loan in full on December 28, 2020. The derivative expense relates to the change in the fair value of the exit fee at the end of each reporting period.
(2)  Other expenses represent costs and investments not indicative of ongoing business performance, such as third-party consulting costs, one-time project start-up costs, one-time costs related to the Reorganization and IPO, severance, signing bonuses, recruiting and project-based strategic initiatives. For the twelve months ended December 31, 2021, these other expenses consist primarily of $20 million of costs related to the Reorganization and IPO and $2 million of severance, signing bonuses and recruiting costs. For the three months ended December 31, 2021, these other expenses consist primarily of $15 million of costs related to the Reorganization and IPO and $0.5 million of severance, signing bonuses and recruiting costs.

Arhaus, LLC and Subsidiaries
Historical Capital Expenditures
(Unaudited, amounts in thousands)
 Nine Months Ended September 30,
(In thousands)2021 2020
Net cash used in investing activities$29,531  $11,129 
Proceeds from sale of property, furniture and equipment—  — 
Total capital expenditures 29,531   11,129 
Landlord contributions11,140  9,940 
Total company funded capital expenditures$18,391  $1,189 
        

Contacts
Investors:
Wendy Watson
SVP, Investor Relations
(440) 439-7700 x3409
invest@arhaus.com 

Media:
THE CONSULTANCY PR
arhaus@theconsultancypr.com 


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